Archive for November 2013
The 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:
- 90% coverage of all premises in the ‘intervention area’ at >30Mbps PPiR and a minimum of 2Mbps CIR (committed information rate)
- 95% at >24Mbps with a minimum of 0.5Mbps CIR
- 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.”
The Welsh Assembly Goverment (WAG) is looking for ways to allow its state-aided BT-supplied £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 area.
FibreSpeed’s physical infrastructure is owned by the WAG, but supplied and operated under a 15 year contract by FibreSpeed, a Geo Networks subsidiary. The business parks and industrial estates on the FibreSpeed network were excluded from the Superfast Cymru plan because they overlapped.
In a letter to Assembly Members, economy, science and transport minister Edwina Hart said a change in the guidelines governing state aid for broadband may allow the overbuild.
“I have commissioned a technical and legal review to consider whether it is possible to provide support for Superfast Cymru in locations already served by FibreSpeed. I hope to provide an update on this shortly,” she wrote on 12 November.
The European Commission gave permission in February 2006 for the WAG to use state aid to commission FibreSpeed. At the time BT’s prices were 2.7 to 7.2 times more expensive than London for the same service (see Note below). This was more than local businesses could afford, the WAG said.
“The EU regulations on state aid for broadband which applied at that time were interpreted as meaning that Superfast Cymru could not be supported in addition to FibreSpeed in those areas directly covered by the State Aid notified FibreSpeed footprint,” Hart wrote.
The WAG earlier refused to allow FibreSpeed to increase its footprint, and refused to answers questions about why it allowed part of it to lay unlit. A Freedom of Information request revealed 126 businesses were using FibreSpeed in June 2011 .
She noted that a number of ISPs are using FibreSpeed links to backhaul wireless broadband connections to homes and businesses across north Wales.
“Many of these ISPs’ customers have benefited from the Broadband Support Scheme to cover the cost of their connection. The beneficiaries of the Broadband Support Scheme aid are the end users, not FibreSpeed nor the retail ISP, so there is not a State Aid issue for these telecoms organisations as a result of the scheme.”
However, Hart allowed ISPs to be paid directly after confusion over who should get the up to £1,000/home subsidy.
Note: The WAG used a BT quotation dated July 2005 for fibre-based services to a site in North Wales to support its claim that the costs were prohibitive.
|Symmetrical connection||Installation fee||Annual rental|
Source: European Commission 22 February 2006
After analysing financial information BT must by law provide to the regulator Ofcom because it has “significant market power” i.e. an effective monopoly in certain markets, Frontier Economics (FE) found that returns on BT’s regulated services were consistently above the rate required to compensate investors, (the weighted average cost of capital as determined by Ofcom), and that wholesale prices could have been on average 10% lower over the period.
The report corroborates an earlier finding by Wik Consult in support of TalkTalk’s complaint to Ofcom that BT indulges in a “margin squeeze” by overcharging for wholesale products. Wik found that Openreach’s costs to build its FTTC network are £4.39 per line per month. BT Openreach charged resellers £7.40 or £9.95 depending on the bandwidth provided.
FE, a top 10 European economic consultancy, is chaired by former UK civil service boss Gus O’Donnell, who is widely known by his initials. On taking over as FE’s chairman in July he said he had come to respect FE “hugely”. “Not only is Frontier at the forefront of applying economics to tough public and private sector issues, it has an internal culture that is second to none.”
The FE report, The Profitability of BT’s Regulated Services, was commissioned by Vodafone. It shows that regulated wholesale prices would have been 10% lower on average, had they been set such that BT had earned a return at the benchmark level set by Ofcom. Because they weren’t, BT was able to earn on average an extra £600m/y for the period.
It found Ofcom is aware BT has been able to earn returns in excess of its cost of capital. It quotes Ofcom’s 2013 consultation on the fixed access market (now being assessed) saying, “BT’s reported profitability was significantly in excess of its cost of capital. We believed that this was prima facie evidence that wholesale charges for ISDN30 might be above the competitive level.”
FE also found that BT had to repay customers for overcharging. “For some markets where BT had cost orientation obligations, BT has been found later to have set prices above a cost oriented level and has been required to make repayments to the purchasing communication providers. The overcharges include £151m for certain Ethernet services and repayments of £42m for certain partial private circuit services.”
FE notes several potential reasons for BT being able to earn regulated returns above its weighted average cost of capital. These include
- differences between Ofcom’s and FE’s estimates of BT’s cost base
- some prices are based on costs that do not directly reflect BT’s actual costs
- BT may price services above its fully allocated costs
- Ofcom may have set RPI-X% charge controls too low, and
- some costs may have been allocated to the wrong service.
“Further analysis is required to understand which combination of these reasons may explain the results shown above,” FE said.
If BT is the Roman empire, then Tove Valley is looking like a small Gaulish village filled with indomitable villagers.
Tove Valley may soon be the only one of the six proposed rural broadband projects invited to talks with culture secretary Maria Miller to get funding, and BT is so determined to get it to throw in its lot with the monpolist telco that a BT manager has at best misrepresented an earlier rural project.
The Abthorpe Broadband Association (ABbA), which has run a wireless broadband service in the Tove Valley area in Northamptonshire for 10 years. Following discussions with the local parish council, it has asked DEFRA/BDUK for money from the £20m Rural Community Broadband Fund (RCBF) to fund a superfast broadband project, Tove Valley Superfast Broadband (TVB) . It has also asked the county council to cut out its postcodes from the proposed BT coverage footprint.
The service, which went live in May, is based on a fibre optic feed into the Lois Weedon school. This is then transmitted via Wi-Fi to nearby villages and properties. TVB is charging £120 a year for up to 30Mbps, plus £175 for sign-on and equipment.
Following a meeting between Giles Ellerton, business development director NGA for BT Group, and TVB chairman Eric Malcomson, Ellerton wrote to Malcomson on 14 June 2013 to confirm the risks of going it alone. BrokenTelephone has seen the letter, which is marked “Strictly commercial and in confidence”.
Ellerton wrote, “If Tove Valley Broadband is not able to secure an ISP partner to offer value added services to end users, there is a real risk of a digital divide occurring again among the different communities in which neighbouring communities will have access to a range of services offered by a choice of ISPs…BT Retail(which manages BT Sport) has not to date used networks similar to Tove Valley Broadband network because of the costs and complications as discussed… Experience has shown that where independent small fibre networks have been deployed, large national ISP’s (sic) have failed to engage or use the network for the reasons already discussed.”
(This is the same issued highlighted by New_Londoner, believed to the Twitter ‘handle’ of Openreach CEO Liv Garfield, in relation to fibre altnet Gigaclear in an ISPreview interview in which it claimed to have had more than 400 enquiries.)
Ellerton went on to say that if Northamptonshire agrees to cut the Tove Valley postcodes out of the BDUK intervention area (the area which BT is contracted to supply) the change would be “irreversible”. If the project was later found to be “not compliant” with state aid funding rules, ABbA would be responsible for repaying DEFRA in full.
“In the case of an application by the Rothbury community in Northumberland for the RCBF scheme, it was felt by DEFRA that the financial risk of failure by the operator (Grey Sky (sic) Consulting) was too great and the funding conditions required that the project then had to be novated (a new contract substituted for the old one) into the Local Authority BDUK project.”
GreySky’s CEO James Saunby concurs with the risks BT identifies, but provide a different picture as to what happened.
“Although GreySky acted as the ‘accountable body’ throughout the development of the project, we are a consultancy company. With the addition of the RCBF funding, the project took on a scale that would never have been appropriate for GreySky to take any financial risk associated with its delivery,” he says.
“GreySky is a consultancy, not a service provider or network operator. To achieve the preferred solution, the council needed to take responsibility for the project. Because of the way the project had developed, this presented some challenges to the council. This solution (novation) was encouraged by Defra as a means of most effectively managing the risks of the project. However, I am not aware of any statement from Defra that ‘the funding conditions required it.’
“It is also not clear to me that this would apply to other projects where they had been developed by communities with the intention from the outset of maintaining an ongoing involvement with the project.”
BT did not respond to requests to explain its use of the language used in Ellerton’s letter to ABbA.
Ellerton wrote that BT’s solution for Tove Valley is to keep all but “the final 10%” of homes inside the BDUK coverage area, and to use RCBF money “to go as far as possible” into the remainder.
“The community can (then) use a Build and Benefit model to provide payment in kind through items such as self-dig or access to way-leaves. You might also be able to contribute through your own locally branded Demand Stimulation programme to achieve 60%+ take up through a pre-registration exercise. A final option could be the community provides private funds to procure a fibre cabinet(s) to service the Tove Valley Broadband project area, along the same lines as Islip in Oxfordshire.”
Malcomson referred BrokenTelephone to a flyer prepared for the 2013 TalkTalk Digital Heroes awards in which he said the project had already connected more than half the 400 potential customers in its area at speeds above 30Mbps. “Supplying 200 households and businesses reflects the levels of take up we predicted in our business plan. It goes to show the demand there is for superfast broadband.”
Nearby villages have asked to join the Tove Valley scheme. “Bradden and Helmdon would nearly double the potential size of our market, but the community model we already have in place will work on a larger scale. It will also give us the opportunity to significantly increase our bandwidth and supply yet faster broadband. The future is very exciting.”
BrokenTelephone is grateful to Patrick Cosgrove for assembling the following reports of wide-spread and growing anger with the politicians, civil servants and operators responsible for the UK’s next generation broadband programme, especially in rural areas.
In a letter on behalf of the South-west Shropshire and Marches Campaign for Better Broadband, Cosgrove wrote to subscribers as follows:
1. WHERE IS THE LEADERSHIP ON RURAL BROADBAND (1)?
The agitation over rural broadband seems to be moving to Westminster. And not before time.
We’re quite used to Lib/Dem MPs breaking ranks within the Coalition but, with the exception of Europe, not so often Conservative MPs. That seems to be changing now with respect to the countryside and the cross-party Fairer Funding Campaign (see http://www.rsnonline.org.uk/politics/mps-pile-on-pressure-over-rural-funding), of which the broadband issue is part. Put it this way, if you were in government, large numbers of your rural voters were thoroughly fed up with the reality of no decent broadband in the foreseeable future and many of them were stampeding in the direction of UKIP for a whole host of reasons (see http://www.spectator.co.uk/features/9069211/rural-revolt/), wouldn’t you do something about it with an election starting to loom? Despite David Cameron’s staunch defence of BDUK’s rural broadband programme, and Maria Miller’s shake-up of BDUK management, it seems that even Conservative MPs are starting to publicly question matters.
This is what John Glen (Conservative Salisbury) said on 31st October: “I thank the minister for that answer (to a general question about the progress of rural broadband roll-out plans), but what do I say to the local authority and residents in village such as Pitton who believe they are in the percentage that will not qualify for the imminent roll-out through the BT deal? They want to be free to develop new community-based solutions with alternative providers, as they anticipate they will not get anything from BT for a long time.”
To which the minister, Ed Vaizey, replied, “I am happy to meet my Hon Friend to discuss any issues. The Rural Community Broadband Fund (RCBF) is designed to support community broadband projects that the programme is no reaching.” To which we say, “But we know that the RCBF money is languishing in Europe because any application has to confirm that it won’t overbuild on BT’s intended infrastructure, only BT won’t tell anyone with any precision where they are going to put that infrastructure.”
Shortly afterwards, Anne McIntosh (Thirsk and Malton Conservative) asked, “What will my Hon Friend say to the 5% of those living in the hills, particularly farmers, who will not have access to superfast broadband by 2016? Will he implement the Select Committee report recommendation that they be given advance warning, so that they can make alternative arrangements to those on offer from BT?” To which Mr Vaizey replied, “As I have said repeatedly, it is up to local authorities to publish their local broadband plans and I am delighted, particularly after the Secretary of State wrote to them, that many have now done so. People in Wiltshire and Yorkshire will know where the project is rolling out”. To which we reply, “Scroll down to the next article to see what a farce that is.”
Then Philip Hollobone (Ketttering, Conservative) said, “It seems to me that BT is a big company that sometimes does not treat small communities very well. May I draw to the attention of the Minister the village of Rushden in my constituency, where residents are complaining that they are not getting the the proper broadband they deserve, despite their best efforts”. And Mr Vaizey replied, “I hear what my Hon. Friend says. BT is a big global company that we should be proud of, but from time to time issues will be raised by our constituents. I am happy to meet him to discuss the problem in detail”. To which we reply, “It’s not just Kettering, Thirsk & Malton and Salisbury. It’s the whole country, including 1,208 people in rural Shropshire who signed a petition making the very same points, and 31 parish and town councils who are also very unhappy.”
We desperately need some strong leadership on this at Westminster as it’s flying in the face off all reason to declare that everything’s fine when it plainly isn’t. A little more honesty and a lot more action would be a great help.
2. DID THE MINISTER SAY PUBLISH LOCAL BROADBAND ROLL-OUT PLANS OR DIDN’T SHE? ?
Knowing who is or isn’t in line for having their broadband upgraded is essential for communities that want to make alternative arrangements. If you don’t know, you can’t apply for public subsidy such as DEFRA’s RCBF grant in case it ends up double-funding an area. Even if you don’t want to apply for funding and you might have sufficient people to make it a viable proposition, alternative broadband providers are not going to invest in your area unless they are certain that BT won’t be operating there in the future, and no-one will tell them.
Here in Shropshire we sent a Freedom of Information Request to Shire Hall asking for a detailed broadband deployment map. They gave it to us but it didn’t tell us very much. We’d seen the Public Accounts Committee recording where Sean Williams of BT said that there was no reason why such information shouldn’t be available, and then we read that Maria Miller of DCMS had said she was “keen to see this information made available” so that other broadband Internet Service Providers and community groups could “determine whether it is worth their while to develop local broadband projects to fill in gaps” so we’d hoped for something a bit more precise. Later we learned that FOI requests were being sent to local authorities all across the country and either receiving similarly opaque answers or, as in Devon’s case for example, were told that they daren’t publish for fear of being taken to court by BT, their so-called “partner”.
Now Cumbria County Council has told Computer Weekly, “The … matter was raised at the Public Accounts Committee (PAC). However, subsequent clarifications issued by Maria Miller’s office defined what BT meant by information that could be shared. The list of postcodes to which you refer, called the speed and coverage template (SCT), is excluded. BT considers that (it) is commercially sensitive.”
This decision could leave community-based broadband schemes schemes in limbo for several years if they were hoping for RCBF money (which won’t be there for much longer), and no chance of alternative providers plugging the gaps on a commercial basis for fear that BT will suddenly announce that they might bring fibre to those areas after all (as appears to have happened in parts of Wales and Worcestershire, and probably elsewhere). Meanwhile BT has added to the confusion by saying that it remained happy to hand over the details for release by local councils. It seems that the Department for Culture, Media and Sport (DCMS) has chosen to shirk responsibility for the mess by saying that it was ultimately a decision for BT and the local authorities.
Interestingly, North Yorkshire was a pilot area for rural broadband, and it seems that its contract with BT was different because it can publish anticipated deployment to post-code level (see next link). Therefore some bright spark at BDUK or DCMS must have agreed to a tightening up of all the local authority contracts that followed the pilot. It would be great if we had a map like this.
IT SEEMS THAT SOME LOCAL AUTHORITIES HAVE HAD ENOUGH?
Cumbria County Council and Devon have now spilled some of their beans. We wonder if this was code for “We’ve been stuffed by BDUK and BT so can’t say too much, but please read between the lines”. After all, what local authority in their right mind wouldn’t want 100% of their residents to have good broadband, or would want the degree of continuing aggravation that’s resulted?
Refreshingly, in Lancashire where there is still two-tier local government and a thriving community broadband scheme (B4RN) that doesn’t appear to get on with BT too well, Lancaster City Council’s Scrutiny Committee has asked Lancashire County Council to:
1. Request that BT as soon as possible, produces a clear roll out programme for its superfast broadband in the Lancaster District to enable other providers to work in areas not covered by the BT programme
2. Seek immediate permission (!) of BT to provide a clear statement of the terms of their joint agreement
3. Request the removal from any future rural broadband contracts with BT that are on a non-disclosure agreement basis to facilitate openness and transparency.
(Plus more – see this link for the full story: http://www.ispreview.co.uk/index.php/2013/10/uk-gov-creates-confusion-bt-bduk-broadband-coverage-data.html
West Oxfordshire District Council, another second-tier local authority, also seems to have had enough, but they’ve been very polite about it so far.
We will contact them to see if we can learn anything from their approach.
WHERE IS THE LEADERSHIP ON RURAL BROADBAND (2)?
Therefore, the situation isn’t just bad, it’s actually worse than before the rural broadband contracts were signed with local authorities. Up until then communities could apply for RCBF money, now there’s no point. Up until then alternative broadband providers were moving into new areas but now they are not (or if they are they’re keeping it secret – what madness!). And to make matters worse, BT, Sky, Virgin etc have been signing large numbers of people up to their entertainment and sports packages, irrespective of whether these customers have superfast broadband or not, so the whole system is starting to slow up because too many demands are being made of it.
We repeat, “Where is the leadership?”